Sainsbury's to raise its Argos bid to £1.5bn after a surge in its own share price

Supermarket giant Sainsbury's is considering raising its offer for retailer Argos to £1.5billion after its parent group waved a £100million 'carrot' at bidders last week, lifting shares in owner Home Retail.

The grocer has until Friday to table an updated offer for Argos's parent, Home Retail Group, shares in which jumped 2 per cent, or 4.2p higher to 183.5p in early morning trade today. Sainsbury shares were up 1.2p at 274.5p.

It bid £1.3 billion last month before South African retail giant Steinhoff gate-crashed the deal with a rival offer worth £1.4billion – or 175p a share.

Sainsbury's is understood to be considering a bid worth up to £1.5billion in a mixture of cash and shares.

New bid? Sainsbury's is considering raising its offer for retailer Argos to £1.5billion

A higher offer has been made possible by a surge in Sainsbury's own share price and the revelation late last week that Argos has £100 million more than previously thought in reserves.

A £1.5billion indicative offer would value HRG at 185p a share.

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John Walden, the firm's chief executive, said that cash reserves were in fact £625million – £100million more than analysts had been expecting – after the company managed its cash carefully over Christmas and cut back investment in DIY business Homebase, which it has agreed to sell separately.

Acquisition-hungry Steinhoff, backed by billionaire Christo Wiese, is also trying to buy French electricals chain Darty and is rumoured to be eyeing a similar firm, The Good Guys, in Australia.

The value of Sainsbury's original offer has already been boosted from about 160p a share to about 170p by the rise in its own share price.

The extra £100million in cash at HRG would allow it to pay an extra 13p a share.

One source said: 'The changing circumstances and the 'come on' from HRG means Sainsbury's could raise this offer to £1.5 billion without even breaking a sweat.'

The higher bid is likely to trigger an extension to Steinhoff's own deadline for a higher offer.